A regulatory Consent Order is theoretically supposed to be about helping a bank to recover. The reality is far different. Why was DRL unable to sell their profitable US mainland operations? Why were they unable to raise capital? I've seen this movie before with other banks. Unfortunately the regulators make the problem worse. I believe that they prevented a US mainland asset sale by refusing to give the buyer a release from cross liens.
Wouldn't it be in the best interest of regulators to encourage an asset sale? They blew 750 mil in "expenses" when DRL was seized. Sadly the regulators are a bunch of Vogon Trolls. They just don't care since it's other people's money. I'm sure they enjoyed the Beach on their Puerto Rican vacation last weekend.
How exactly do the regulatory "doctors" bleed the patient? They limit profitable business lines. They hinder asset sales and capital raises. They burden the bank with huge regulatory compliance expenses. Our banking system is truly in the dark ages.
The best way for a bank to survive once the regulators target them is to get out of the banking world altogether. This is what BBX did with great success. They sold all their bank branches and became an unregulated specialty lender. The stock has soared since then as they dealt with bad assets in an orderly fashion without the regulatory boot on their neck.
There is also holding company debt ahead of the preferred stock, not to mention the 750 mil that in "expenses" that the FDIC is claiming. Preferred appears worthless to me.
The Puerto Rican Govt development bonds I track are now at 55 cents on the dollar to yield 19%. The chickens may come home to roost for PR and their attacks on DRL. Shareholders may recall how the left wing Governor called DRL the "millionaires bank". Muni bondholders may be the next group of "millionaires" under attack.
I think you might get a chance to sell for at least 50 cents. Many shorts are looking to cover. There could be speculation about the holding company still recovering assets from the PR tax litigation through further appeals. The share count is very low. Those are all good reasons for day traders to play with the common.
It's my belief that even if DRL (holding co will file for bankruptcy) eventually gets some of the claimed tax rebate it won't matter for equity holders due to the 750 mil claim by the FDIC. I'm not a bankruptcy judge or lawyer though. The court might see things differently and could conceivably decide shareholders are entitled to some part of any eventual recovery that is made. I seriously doubt it, but might be enough of a possibility for the day traders to have some fun.
Boston, there is no case since it's nearly impossible to sue the government even if they have misbehaved (hard to prove here, although I think it's true). For example, take all the Tea Party groups that were unfairly targeted by the IRS. That harassment went on for years and is rather obvious. Everyone (regardless of their politics) should be appalled by this. The odds of those groups ever collecting a dime in damages are low.
The whole process is awful. The FDIC always claims huge expenses by giving sweetheart deals to the buyers (who are essentially paid to take the assets). I believe that DRL had a buyer for their profitable US mainland branches and the regulators fouled that up by refusing to give them a cross lien waiver. The FDIC doesn't help troubled banks with their "consent" orders. They bleed them and prevent them from taking steps to raise capital. Sad but true
The tax case is moot for shareholders at this point. Even if the holding company retains the tax case against PR (which I think they do) and eventually wins on appeal for 250 mil, there are still debt holders and an FDIC lien for 750 mil in "expenses" ahead of equity holders.
The common and preferred stock will get delisted but trade for awhile and day traders could play with them. Ultimately, I would expect those shares to be eventually cancelled with 0 value. The FDIC has estimated their "costs" as 750 million. That's a lien against holding company assets ahead of equity holders. Debt holders might eventually get some recovery. No chance for the common or preferred shares to get any recovery other than from the shorts covering.
Preferred holders tend to be more sophisticated investors and better informed. Fat Lady hasn't sung yet, but she's walking up to the podium and they are testing her microphone.
The restatement to Doral's income was due to changing valuations due to the financial crisis. Is that their fault? You want to hold DRL responsible for the financial crisis but not all the other banks, politicians, etc?
In my experience it's hard to bet on left wing politicians to do the correct thing unless they absolutely have to. The socialists in Greece didn't change their tune until they were days from a bank liquidity crisis. Most PR taxpayers / voters will never connect the dots and understand why their local economy is in such dire shape. Look at many US urban cesspools (Detroit for example) that keep electing the same party with the same policies that have failed for many decades.
A US mainland asset sale is more likely if they are going to pull off a miracle. Maybe they can sell a portion of the judgement against PR to a 3rd party at a discount. I'm long a few shares of the preferred just in case they pull it off, although they probably won't.
Yes, I think you're right there must be long term holders of MILL-PC that have owned it for years and are not about to swap into that new upstart MILL-PD issue. MILL-PC must be better since it has a slightly higher coupon and is convertible - LOL. They are not going to swap into MILL-PD just because math or logic dictate that they should. Never mind that they could even take a nice tax loss and use the money saved by swapping into MILL-PD to buy some "free" shares of MILL common while owning the same number of preferred shares.
I think they will continue to pay the dividend. Been nibbling on MILL-PD also. Hard to believe that the huge discount of MILL-PD to MILL-PC has opened up again.
In a completely unrelated story, there is no truth to the reports that I'm cashing in my MILL-PD shares to invest in a Hostess Twinkie distribution center.
It would be in the best interest of PR to settle. If DRL gets seized then the FDIC or another bank buying DRL's assets will assume the claim against PR. The new owner of the claim would not be under the same time pressure as DRL is. PR would almost certainly end up having their BS appeal lose and owe 100 cents on the dollar. At best maybe they'd get a settlement at 90 cents on the dollar. It's in their best interest to settle aside from saving jobs and a resource for the island. Having said that, I doubt that they will settle because PR is clearly run by a bunch of far left wing political hacks with a vendetta against DRL. I don't expect that they will do the right thing or what's in the best interest of taxpayers.
Tiny East West Petroleum (OTCPK:EWPMF) owns a share of the Cheal field operated by Tag Oil. They are currently producing 350 BOE/d in New Zealand and are on-track to exit 2015 with production of about 450 BOE/d. With December 2015 Brent futures trading about $66 per barrel, they will be generating netbacks of about $36 per barrel and an annual cash flow run rate of about $5.9 million. At a recent price of 10 cents / share, EWPMF has a market capitalization of $9 million. The company has a debt free balance sheet and the enterprise value is nil after netting out the cash. It's no wonder that East West Petroleum has been actively repurchasing their shares.
Although all of the company's current production is from New Zealand, they also have a valuable 15% interest in four large blocks in Western Romania. Drilling is expected to finally get underway there in late 2015 and the company's costs are fully carried by operating partner NIS Petrol.
Why is EWPMF trading so cheaply? Many investors purchased the stock a few years ago at more than 10X the current share price. The company had grand visions of becoming a global shale play. EWPMF had also hoped to participate with partner Tag Oil in New Zealand's East Coast drilling. Things have progressed more slowly than expected in Romania and some investors lost patience. Their Romanian partner (NIS Petrol ) is a Serbian company that is majority owned by Gazprom. NIS Petrol is not currently subject to sanctions, but this potential issue may have scared away some investors.
What catalysts might improve valuations for these 3 Unicorns? Acquisitions and mergers are one potential catalyst since these deals are typically valued at 4X to 5X cash flow. Reverse splits would actually be beneficial for EWPMF and PTAXF by helping to attract investors that are put off by the low share prices. Growth is an important catalyst. As these companies grow, they will start to attract more institutional interest resulting in multiple expansion.
Frontline, let's say that PR settles for 120 mil, pays 20 mil and agrees on a payment plan for the other 100 mil. I say that adds 120 mil to capital. The regulators won't count the judgement because it's disputed. Once it's no longer disputed they would need to count the whole thing towards capital. If not then they have to tell every other bank to write-off every PR govt loan on their books.
fp, as they say "time is money". In this case Wakeman doesn't have time for the appeals process. If he wants to save his job, a settlement for around half what is owed would do the trick. I'm not saying that such a settlement would be "fair". PR has no chance of reversing the judgement on appeal. However a settlement is in the best interests of DRL stakeholders including Wakeman. Other than selling US mainland assets a settlement is their best bet to avoid being seized. If they settle for half what is owed it ends the appeals process and the regulators have to count it as capital. It would be a really bad day for the DRL shorts. The preferred issues would go up close to 10X.
They probably get seized, but I'm long a few shares of DORLO, DORLN and DORP just in case they pull something off. I covered my short on the DRL common awhile back and closed most of the long trade on the preferred issues. If they settle with the PR deadbeats for half what is owed, the preferred is going to be worth a lot more than 2 cents on the dollar. That's probably their best hope.